cpng

2015 cranes service & maintenance contracts from Favco were $30m.
2016 updated as on July,11 was Zero.

2016-07-11 20:37

probability

FAVCO main board listed in 2006 in Malaysia, the main business is the manufacture and crane. It is "the MUHIBBAH" 60% owned subsidiary. Manufactured by FAVCO crane brand is well-known "Favelle Favco" and "Kroll". In addition, the FAVCO with 5 factories were located in Malaysia, Australia, Denmark, United States and China.


Starting in 2012, FAVCO performance can be described as very good, sales volume and profit margins has 4 years of continuous progress. Management is also very generous dividends. If there are no accidents, FAVCO is only 7 consecutive years in Malaysia to increase dividends of listed companies. 2.5 cent increase of its dividend from 2008 to 2015, 15cent. FAVCO financial is basically no problem, currently hold RM300m net cash, equivalent to RM1.36 per share.


At the current share price calculated RM2.56, FAVCO PE is 6.7x,ROE is 15%,D/Y is 5.86%. From a valuation perspective, FAVCO is very cheap, but why the share price had little momentum but was still falling trend? I believe most investors tend to be based on past performance and valuations to determine if a company is worth having, rather than to measure future performance. This is where the problem lies.


In 2015, the FAVCO 84% order from O&G industries. In other words, FAVCO order depends on the O&G industry is good or bad. The past two years, oil prices from a peak around $ 120 a barrel, falling to a minimum US $ 27 per barrel. Plunge in oil prices has caused many O&G industry faced layoffs, crash or even a loss of performance. This also indirectly affects the FAVCO received orders. FAVCO in 2014, the peak in oil prices, orders on hand were up to when oil prices started to fall after the RM1.1b!, FAVCO also perk up straight down to the current RM604m of the order, was the lowest since 2013!


Read FAVCO getting orders in recent years, as follows:

2014 = RM375.2m

2015 = RM138.5m

2016 = RM64.0m (as of 7/11)


FAVCO gained has resulted in a serious decline in the amount of orders! Currently RM604m in the hands of the order is expected to only spend 1 year and over consumption. Now O&G the market, FAVCO order rate might not optimistic. In response, FAVCO Gan Ma Wan has set up a service center, hoping to get from customer base crane repairs and maintenance orders for a long time, to increase revenue. However, this response is expected not to much effect. In addition, the FAVCO hopes looking for potential takeover targets in the crane industry. Based on crane industries is that several, I believe has little chance of success, not a message any time soon.


FAVCO values on how much does it cost? FAVCO turnover this year is expected to be around RM650m. 10% net interest rates (average over the past 5 years) to calculate its profit after tax was RM65m, equivalent to 29.45 cent per share. At 10 times the PE to projections, FAVCO is about RM2.95m per share in this year's potential value.


FAVCO RM1.36 per share currently has net cash on hand, dividends is not a problem at all. But, imagine if the performance is not ideal this year, will the FAVCO send so much on dividends, please? Even if, it is only used to comfort shareholders. FAVCO dividend amount is the net profit of the past 3 years 30-35%. 29.45cent net income per share calculation, the author expects FAVCO only 10cent per share dividend will be deployed this year.


Summary, FAVCO is expected to be in late 2016 and 2017, dealt a serious blow. If there is no accident, it followed several quarter setback. FAVCO has plenty of cash on hand and heading the dividend rate, decreases in share prices was limited. Expect the next 1-2 years, FAVCO shares will move between RM2.30 and RM2.80.

2016-07-11 20:47

Ricky Yeo

As a shareholder I can be bias, but I feel that this post is rife with assumption without providing any supporting facts. If I would bring the author back to year 2013, you would have buy Favco without thinking because their outstanding contracts are growing for years before that, you would extrapolate it just like how you are doing it now that Favco is going downhill. Unless you are able to see the tipping point when the O&G industry begin to collapse, how would you know when will this downtrend is going to reverse? You don't. Me either. My confidence lies in their ability to ride through this trough because of their cash position. I have no insight how M&A or their servicing division will perform but they have the best opportunity during crisis like now to do things others can't especially when the rest is saddled with debts.

The crane industry is cyclical as it rides on construction up/downtrend. So you have to decide if you want to go in during the peak or trough.

2016-07-12 06:28

ganasai

What writer said is correct. Uncle also overlook. Downtrend. But good for long term investor come in.

2016-07-12 07:46

cpng

不知道死活, 油气股真的还没死光。
我一个朋友是德国公司油压系统供应商，他的公司是favco指定的，favco 制造的大型起重机械，都是安装这些油压系统。
我朋友去年2015年，favco 给了他们$3000万的生意额，但是今年2016年到现在为止，favco 提供的生意额是零，也就是说没有新order,因为favco的起重机械一台都卖不出去。

2016-07-12 08:35